Sterling today hit a record low against the euro of 97.99 pence as it approached parity for the first time since the euro was launched in 1999.
As it continued its downward slide, the pound also hit a record trough versus a basket of currencies earlier today as a bleak economic backdrop and expectations for UK interest rates to stay well below those in the euro zone weighed heavy.
Higher interest rates in the euro zone have increased the euro's appeal against the pound as it has narrowed the yield spread between euro zone and UK government bonds.
The yield on 10-year UK bonds hovered around 3.114 per cent today, near a record low of 3.008 per cent hit last week, while the yield on its euro zone counterpart fell to an all-time trough of 2.909 per cent.
The dollar fell broadly today, eroded by a grim outlook for the US economy and the Federal Reserve pouring liquidity into a battered US banking system.
As the US currency softened, dealers said the Swiss franc gained sharply on heightened geopolitical risk as Israeli warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive day..
With US interest rates now at 0-0.25 per cent, the US central bank has turned to other ways of boosting growth including flooding the banking system with masses of money.
Analysts say this environment is a bugbear for the dollar from a relative yield perspective compared with the euro zone, where borrowing costs stand at 2.5 per cent.
"The fact that rates are so low are a reflection on the state of the US economy and the fact that policy options are becoming very limited. That will be a thorn for the dollar," said Phyllis Papadavid, currency strategist at SocGen in London.